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January 21, 2014

HRAs Falling as HSAs Continue to Soar: EBRI

Researcher notes that account balances could one day be invested in stocks and bonds

Health savings accounts and the number of people using them jumped in 2013, with assets in HSAs increasing to $16.6 billion from $11.3 billion between 2012 and 2013, and individuals with HSAs jumping to 7.2 million from 6.6 million during the same time, according to new research by the Employee Benefits Research Institute and Mathew Greenwald & Associates.

However, EBRI and Greenwald found in their just-released 2013 Consumer Engagement in Health Care Survey that employer-funded health reimbursement arrangements (HRAs) declined in 2013 for the first time in a decade.

There were 4.7 million HRA accounts in 2013, down from 5.1 million in 2012, according to the report.

By 2013, 23% of employers with 10 to 499 workers and 39% of employers with 500 or more workers offered either an HRA- or HSA-eligible plan, according to the research. These plans covered about 26 million people in 2013, representing about 15% of the privately insured market. “As the number of people with account-based plans expands, total assets in these accounts can be expected to grow as well,” said Paul Fronstin, EBRI’s director of the Health Research and Education Program, in a statement.

The research notes that account-based health plans first came on the market in 2001, when a handful of employers began to offer HRAs: employer-funded health plans that reimburse workers for qualified medical expenses. Starting in 2004, employers were able to also start offering health plans with HSAs, tax-exempt trusts or custodial accounts that individuals can use to pay for health care expenses.

Fronstin notes in the research the importance of tracking employer contributions.

In 2013, individuals with an employer contribution of less than $1,000 had an average account balance of $2,140, while those with an employer contribution of at least $1,000 had an average of $2,889 in their account. Similarly, individuals who contributed less than $1,000 had an average account balance of $1,569, while those who contributed at least $1,000 had an average balance of $3,196.

As it stands now, account balances in these plans are low and are therefore invested in relatively safe vehicles such as money market funds (investments are usually restricted to a money market fund until the savings account reaches a minimum threshold, such as $2,000 or $3,000). As account balances grow, however, Fronstin notes “the potential to invest in more risky investment vehicles (such as mutual funds and stocks) will grow. The opportunities for capital appreciation will increase but so will the opportunities for capital losses, even among individuals with high levels of employer and individual contributions.”